ABOUT OFFSHORE FINANCIAL CENTRES

On an international scale, the offshore financial services industry has evolved substantially over the last 30 years, largely in response to the globalisation of financial markets and economic activity. There are now around 70 OFCs worldwide. Generally, this definition includes any centre where there is provision of financial services to overseas clients, so that major international financial centres with a high proportion of such business, such as London, are in this sense also offshore financial centres.

In fact many of these OFCs are not based on an island at all and actually, less than 30% of all offshore financial centres are based in the Caribbean. In addition, in 1999, International Monetary Fund (IMF) researchers estimated that Caribbean OFCs account for less than 20% of the total assets held in all OFCs worldwide.

OFCs in Africa include Liberia, Seychelles and Tangier. In the Asia and Pacific region they range from well-known centres such as Hong Kong (SAR) and Singapore to smaller countries such as Western Samoa, the Cook Islands and Vanuatu. European OFCs include Ireland, Gibraltar, London and Switzerland, to name a few, and in the Western Hemisphere OFCs include the United States, Puerto Rico, the Cayman Islands, the British Virgin Islands (BVI), and Bermuda, among others.

The growth of OFCs generally can be traced back to the restrictive regulatory regimes that many advanced countries put in place back in the 1960s and 1970s. Governments brought in measures such as capital controls, restrictions on interest rates and high non-interest-bearing reserve requirements.

Governments did this because they wanted more control over monetary policy. But the restrictions had another, unintended consequence: they tended to encourage a shift of deposits and borrowing to less-regulated—but still more than adequately-regulated—institutions in OFCs.

In Europe, Luxembourg began attracting investors from Germany, France and Belgium in the 1920s with the 1929 Holding Company regime due to low income tax rates, the lack of withholding taxes for non-residents on interest and dividend income, and banking secrecy rules. The Channel Islands and the Isle of Man provided similar opportunities to residents of the UK and other European countries. In the Middle East, Bahrain began to serve as a collection centre for the region’s oil surpluses during the mid 1970s, after passing banking laws and providing tax incentives to facilitate the incorporation of offshore banks. In the Western Hemisphere, the Bahamas and later the Cayman Islands provided similar services.