OFFSHORE FINANCE

It is estimated that up to 60 per cent of the world's money may be located offshore, where half of all financial transactions are said to take place. Meanwhile, there is a perception that secrecy about offshore is encouraged to obfuscate tax evasion and money laundering. Depending upon the criteria used to identify them, there are between forty and eighty offshore finance centres spread around the world. The tax rules that apply in these jurisdictions are determined by the jurisdictions themselves and often are more benign than comparative rules that apply in the larger financial centres globally. This gives rise to potential for the development of tax mitigation strategies. McCann provides a detailed analysis of the global offshore environment, outlining the extent of the information available and how that information might be used in assessing the quality of individual jurisdictions, as well as examining whether some of the perceptions about ‘Offshore’ are valid. He analyses the ongoing work of what have become known as the ‘standard setters’ – including the Financial Stability Forum, the Financial Action Task Force, the International Monetary Fund, the World Bank and the Organization for Economic Co-operation and Development. The book also offers some suggestions as to what the future might hold for offshore finance.

HILTON McCANN was the Acting Chief Executive of the Financial Services Commission, Mauritius. He has held senior positions in the respective regulatory authorities in the Isle of Man, Malta and Mauritius. Having trained as a banker, he began his regulatory career supervising banks in the Isle of Man. In Malta, his focus was on investment business, and in Mauritius his focus was on the establishment and strategic development of the recently created FSC.

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OFFSHORE FINANCE

HILTON McCANN

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CAMBRIDGE UNIVERSITY PRESS
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo

CAMBRIDGE UNIVERSITY PRESS
The Edinburgh Building, Cambridge CB2 2RU, UK

Published in the United States of America by Cambridge University Press, New York

www.cambridge.org
Information on this title: www.cambridge.org/9780521862332

© Hilton McCann 2006

This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without
the written permission of Cambridge University Press.

First published 2006

Printed in the United Kingdom at the University Press, Cambridge

A catalogue record for this publication is available from the British Library

ISBN-13 978-0-521-86233-2 hardback
ISBN-10 0-521-86233-7 hardback

Cambridge University Press has no responsibility for the persistence or accuracy of URLs for
external or third-party internet websites referred to in this publication, and does not guarantee
that any content on such websites is, or will remain, accurate or appropriate.

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CONTENTS

	List of figures	page vii
	List of tables	viii
	Preface	xi
	List of abbreviations	xix
PART I	The past	1
1	Linkages	3
2	The ‘Offshore’ environment	10
3	The service providers and the consumer (1)	37
4	The service providers and the consumer (2)	58
5	The significance of taxation	82
6	A description of regulatory and supervisory processes	116
7	The regulator and the regulatory authority	177
8	Money laundering	202
9	Some international organisations and groupings	230
PART II	The present	259
10	Supranational focus (1): the Financial Stability Forum and the International Monetary Fund	261
11	Supranational focus (2): the Financial Action Task Force	287
12	Supranational focus (3): the Organization for Economic Cooperation and Development	307
PART III	The future	331
13	Some problems ‘Offshore’	333
14	Some problems ‘Onshore’	345
15	Small islands and ‘Offshore’	359
16	Some information on particular centres	373
17	The UK and ‘Offshore’	388
18	The USA and ‘Offshore’	400
19	Can the problems be identified?	422
20	Offshore's Future	433
21	How to assess an ‘Offshore Finance Centre’	465
22	Conclusion	479
	Appendix 1	491
	Appendix 2	531
	Index	534

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FIGURES

6.1	Regulation: problem/impact analysis	page 120
6.2	Regulation: cost/benefit analysis	121
21.1	The success paradigm	472

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TABLES

1	Participation in the Information Framework	page 491
2	Services ‘Offshore’	491
3	The medical paradigm	492
4	Financial services regulatory tools	492
5	Number of registered companies	492
6	Regulatory structures worldwide	493
7	External factors versus regulatory factors	493
8	Examples of punitive measures that may be imposed by supervisory authorities	494
9	The evolutionary process describing the maturation of an international financial services centre	494
10	Members of the Basel Committee	495
11	Analysis as at end 2003 of the number of jurisdictions assessed under the Financial Sector Assessment Program	496
12	Analysis as at February 2005 showing the number of jurisdictions assessed under the Financial Sector Assessment Program	496
13	The general framework of the Forty Recommendations	497
14	The general framework of the Nine Special Recommendations	497
15	Population, land area and population density of selected OFCs	498
16	Global statistics: foreign direct investment, assets under management and world exports	498
17	The FSF's categorisation of OFCs (as at March 2000)	498
18	FATF Members and Observers	500
19	Tax havens, as defined by the OECD (as at June 2000)	501
20	The OECD's ‘potential by uncooperative tax havens’	503
21	The OECD's ‘uncooperative tax havens’	504
22	The FATF's ‘First Set of Jurisdictions’	504
23	Ongoing changes to the FATF's list of Non-Cooperative Countries and Territories	506
24	Members of the Egmont Group	508
25	Members of the European Union	509
26	OECD/FATF/FSF reports summarised	510
27	Analysis of FSAP and Module 2 assessment reports (as at 12 March 2004)	516
28	Members of IOSCO (as at 30 April 2005)	518
29	OFCs, summary status	521
30	IMF assessment status summarised	524
31	Analysis of total assets held in OFCs	527